LOS ANGELES -- In the latest round of legal wrangling between two local governments in California, Ventura County was told last week by an appellate court that $48,391 of penalties it collected on delinquent Mello-Roos special taxes must be returned to the city of Camarillo.
The Second Appellate District Court of Appeal said Thursday that Ventura County violated state law when it placed penalties collected on delinquent Mello-Roos special taxes into the county's general fund.
"Until the legislature directs to the contrary, Mello-Roos delinquency penalties follow the tax and must be distributed to-the public entity that levied the tax," the panel said in affirming an earlier decision by the Ventura County Superior Court.
Camarillo, a city of 57,000, levies the special taxes to pay debt service on $13.9 million of Mello-Roos bonds issued in 1990 to fund sewer system construction.
In a 3-to-0 decision, the Appellate Court panel upheld a trial court ruling in 1992 that ordered Ventura County to disburse $48,391 in delinquent tax penalties to Camarillo.
The county has the option to ask the state Supreme Court to review the Appellate Court ruling, said Dan Murphy, Ventura County assistant county counsel.
Murphy said, however, that it was "a little premature" to discuss what possible approach the county will take in the wake of the ruling. "I have not even been informed of the decision prior to your call," he said yesterday.
Statewide ramifications of the ruling on other Mello-Roos districts also were unclear yesterday. One of the state's leading experts on Mello-Roos bonds, Dean J. Misczynski, director of the California research bureau for the state library, said the ruling was in line with what he said is his "conceptual understanding" of how the Mello-Roos Community Facilities District Act of 1982 is supposed to work.
Penalties "should go to the jurisdiction that levied the Mello-Roos tax on the theory that [proceeds] may be needed to protect the bondholders" if it becomes necessary "to replenish the reserve fund," Misczynski said.
Counties should be able to deduct "their reasonable costs" in the collection of penalties, Misczynski said.
Camarillo city manager Bill Little said yesterday that the city created the Mello-Roos district in March 1990 to finance a sanitary sewer system and four pumping stations.
What sparked the legal dispute was the failure of two property owners to remit $483,914 in Mello-Roos special taxes during fiscal 1992. A 10% penalty assessment of $48,391 was imposed. The property owners finally paid the special taxes and delinquency penalty.
The county collected the special taxes and-penalty on behalf of Camarillo and distributed the taxes to the city. But the county kept the $48,391 penalty payment, which it put in the county general fund.
Camarillo sued Ventura County, claiming the county was unjustly enriched at the cost of the Mello-Roos district. Camarillo acts as the legislative body for the West Camarillo Community Facilities District No. 1, which was formed under the MelloRoos act. It is the city's only MelloRoos district.
Ventura County justified its decision to keep the penalties because under state law, ad valorem property taxes are handled that way, Murphy said.
Murphy said Ventura County argued that a section of the state revenue and taxation code provides that amounts paid as delinquent penalties shall be distributed to the county general fund.
But Camarillo disagreed. "We said the law talks about general [ad valorem] taxes, not special [Mello-Roos] taxes," Little said. "We got in a big brouhaha about that."
The Appellate Court sided with Camarillo.
"We disagree" with Ventura County's position, the Appellate Court panel said in its opinion. "Unless otherwise directed, interest, penalties, and costs collected on delinquent taxes follow the tax" and go to the public entity that is entitled to the tax.
The panel said the county "may deduct for collection costs, but may not withhold delinquency penalties."
If the property owners had not paid the tax, "the district could have instituted foreclosure proceedings to collect the special taxes, interest, penalties, costs, fees, and other charges that are delinquent," the panel. said. "The taxes and penalty assessments would have been removed from the tax roll and paid to the district."
Little said the semiannual principal and interest payments to bondholders were never in jeopardy.
"There was never a question about bondholder payments," he said, and a reserve fund was not tapped.
One other property owner fell behind on special tax payments, Little said. "We went into court, got a foreclosure order," but then the owner caught up with the delinquency, Little said.